The primary objective of this project is to identify and measure the extent of physicians' responses to reductions in Medicare fees imposed by the implementation of the Medicare Fee Schedule (MFS). Possible responses include changing the volume of services whose fees are reduced by the MFS, altering the volume of other services provided to the same patients, and changing the volume of care provided to other patients, both Medicare and private. This objective is important because it is directly relevant to evaluating the success of the MFS as a cost control polity. If physicians' responses to MFS fee changes appear to thwart cost control goals, then stricter policies regarding service "bundling" and volume controls will need to be considered. Capitation would be another approach to limiting unexpectedly large cost or volume increases prompted by fee reductions. However, the design of such policies requires a precise understanding and measurement of physicians' supply response to MFS fee reductions. Specifically, we propose to analyze Medicare claims data from the third quarter of each calendar year, 1990 through 1994. The data will cover all ophthalmologists and orthopedists in the nation. In addition, two Blue Shield plans have agreed to cooperate with the project by providing claims data for Blue Shield patients seen by the sample physicians. Patient data will be aggregated to the level of the physician practice, which will be the unit of observation for the statistical analyses.